Have you heard that by cutting out a cup of coffee each day you can save enough to reach your financial dreams? That sounds optimistic to me and I’m pretty sure that I’d be unbearable within a day or two without a regular caffeine fix! But I’m also a fan of the MythBusters TV show, so I decided to run a few experiments of my own around this cup of coffee idea. The results: Through saving $5 a day (Find Five!) you can achieve strong financial results!
First let me tell you I’m a numbers dork and through the beauty of spreadsheets I ran a bunch of these scenarios. I won’t inflict you with all the background calculations, but if you want to see how I ran all of this, please contact me by clicking here.
Find Five for the First Year: Safe But Not Spectacular
The first calculation was putting $5 a day into a bank savings account over the course of a year. Think of this as an emergency fund or a rainy-day fund. The interest rates here aren’t huge but your money is safe. Look for a bank with FDIC insurance and don’t be afraid to comparison shop for terms and interest rates. What to look for in these accounts will be the subject of a later post. You can compare savings accounts at bankate.com by clicking here.
Here’s the thing. When you’re just starting out you won’t see much growth. If you put $5 a day into an online savings account (I’m using the interest rate on mine for example), you should have saved around $1825 that first year, and earned about $18 in interest. Remember you’re looking for safety here, not for huge gains!
Find Five For The Longer Term
Now, let’s start investing some money! If you put away $5 per day (using average stock market returns over the last 100 years!), you could have just over $24,000 in savings plus gains at the end of 10 years. But let’s say you started saving when you were 20 years old and saved that same $5 per day until you retired at 65 years old (a period of 45 years). That $5 a day can grow to an estimated $395,000! Can you find $10 a day instead? That has the possibility of you retiring with almost $800,00 in investments!
I ran these scenarios using different savings amounts and different time periods (I can supply all the numbers if you contact me by clicking here). But here’s the bottom line: the more you can save and the longer you can save, the more you can earn!
Pacing: $5 A Day, or $150 Per Month?
In a study which looked at savings patterns, the participants used a savings app and were asked whether they would agree to save either $5 per day or $150 per month. The results were 4 to 1: over 29% of the participants who were asked whether they would save $5 per day enrolled in the savings program. This compares to just over 7% of those who were asked whether they would save $150 per month. So…Find Five!! Saving a small amount regularly each day is much easier for many people than having to save a larger amount each month. For more in-depth information on this study you can click here.
Ideas to Save
But look, if you want to talk about society going into chaos, just ask a bunch of people to give up their daily caffeine. That’s a world a world I don’t want to live in, thank you very much! And for a lot of people, going to a café (which I still call a coffee shop) is as much a social activity as a caffeine fix. So here are a few easy ways to save 5-bucks a day (or more!).
- Switch from a Latte ($4.20 according to the Starbucks website) to a cup of drip coffee ($2.42). Savings = $1.78
- Brew a pot of coffee at home (I know, kills the social thing). Cost: around 25-cents, savings = $3.95
- Cut your cable. My savings was around $70 a month (I kept broadband). Savings = around $2.33 a day
- Shop for cell phone service. My savings was around $65 a month or $2.16 a day
- Order a movie on Netflix or Hulu instead of going to the movies and make popcorn. Two adults, two kids (around $48.76 not counting snacks) versus Netflix (10.99 standard plan). Savings = around $37 per month or $1.26 a day
- Switch to LED lightbulbs
- Don’t use heated dry on the dishwasher
- Weird as it may sound, spend cash. Take your pocket change and put it into: a piggy bank; a higher-yield savings account; an investment account
- Shop for low cost car insurance and take advantage of any discounts like affiliate marketing, or good driver
A Few Notes On Investing
- These scenarios were based on specific investment-portfolio assumptions. Your investment portfolio should depend on your priorities and risk preferences.
- Any investor’s results will vary based on their portfolio, their management of their portfolio, and the investing markets as a whole.
- I don’t manage clients investments or make specific stock or investment-portfolio recommendations. I do help clients manage their own finances and teach them how investments and the investing markets work.
Think there’s no such thing as a free lunch? Join me next week to look at how wrong that can be if you’re in the right circumstances! I’d be honored if you continue on this journey with me, and thanks SO MUCH for joining me this week. I truly appreciate it.
If you have questions or just want to chat, please schedule a 30-minute free consultation by clicking here or by visiting https://andyproctor.com/schedule-your-free-consultation/ .